The Conservative Case For Banking Reform

If we really want to prevent another financial crisis, Government has to admit that it’s time to reinstitute Depression-era barriers between investment banking, commercial banking, and securities trading. The simple truth is if you’re too big to fail, then you’re too big, because no amount of regulation is going to keep the biggest guy on the block from maximizing their profits at any cost if there is no true consequence for failure. Why am I bringing this up now? Because while I still think fundamental banking reform is a long-shot, when mainstream conservatives start saying it’s time to do something about the nation’s largest banks, it’s time to take notice and make sure that credit unions lend their voice to the debate.

Conservative columnist George Will, who is the intellectual heir to William F. Buckely, argued in a recent column that the size and scope of the nation’s largest banks amounts to a government subsidy that allows them to provide services more cheaply than community banks. He could have added credit unions, but I guess you can’t ask for everything. He argued that “by breaking up the biggest banks, conservatives will not be putting asunder what the free market has joined together. Government nurtured these behemoths by weaving an improvident safety net and by practicing crony capitalism. dismantling them would be a blow against government that has become too big not to fail.”

In the meantime, on the other end of the political spectrum, Senator Elizabeth Warren used a Senate Banking Committee Hearing reviewing progress on Dodd-Frank implementation to admonish regulators that too big to fail banks were becoming too big to take to trial with the end result that they are not being properly regulated. She is quoted in the New York Times, saying “If they can break the law and drag in billions in profits, and then turn around and settle, paying out of those profits; then they don’t have much incentive to follow the law.” No, they don’t, but meanwhile, credit unions are put at a competitive disadvantage in complying with regulations they didn’t need in the first place.

For the last six years, the behemoth banks have played a very cynical game running to government for a bailout when their business practices blew up in their faces, but complaining that anyone seeking to regulate them is against the free market. At the end of the day, though, they should not be able to have it both ways. I say God Bless the guy that makes $25 million a year so long as he pays the price for messing up. That’s why we need true banking reform and why we might be getting a consensus from both the left and the right that now is the time to examine our financial system before it further disfigures our capitalist system.

We don’t need more government regulation for the big banks, the community banks and/or the credit unions. What we need is to let the markets do what they do, and make it very clear that if you fail, YOU FAIL. Every attempt at leveling the playing field, leads to more regulationand more unintended consequences. Get the federal government out of the markets…….

This is my big gripe about the CFPB. If you feel that we need a national consumer advocate argue that on its own merits but don’t respond to a banking crisis by imposing regulations that burden credit unions and do nothing to address the TBTF dilemma

The credit union industry ran to Congress for a bailout when the corporate CUs blew up. The industry and your regulator asked for legislation that shifted the cost from the NCUSIF to the Temporary Corporate CU Stabilization Fund.

Keith Corporates went bankrupt and were forced to try to reconstitute under tough new rules, CEOs were removed and boards were sued. Natural person credit unions are undergoing a major wave of consolidation and are paying back the cost of treasury loans without taxpayer funds to help them. That’s an industry paying a price for an economic downturn even though it was not responsible for it.
In comparison the nine largest banks were given a total of $125 billon to tide them over during the crisis with no strings attached. Why weren’t these CEO’s forced to resign? The TARP program-for which credit unions were not eligible-amounted to (conservatively) a $700 billion line of credit and some of the same banks, such as Goldman Sachs that played a part in creating the problem were quickly passing out bonuses as if they did nothing wrong, even though without the Government bailout they might very well be out of business. All of this is happening even though the most basic regulatory reforms, such as regulation of the derivatives market are still being contested. In short, credit unions paid a severe financial price for missteps that they would not have made but for the banking industry but the Lords of Finance get to survive and prosper knowing that the government will never let them fail. How is this good for all but the largest of banks? How is that good for a functioning finance system? Where is the disincentive to keep the future Lords of Finance from doing the same thing all over again?

From a credit union’s perspective, it is NCUA that was responsible for the corporate losses. They have examiners on site at the corporates and failed to recognize the investment portfolio and the risks they contained. Those examiners should have been fired as well as the investment personel.